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Centre reduces contribution rate for ESI

Centre reduces contribution rate for ESI

The Government of India has taken a historic decision to reduce the rate of contribution under the Employees' State Insurance Act-1948 from 6.5% to 4% (employers' contribution being reduced from 4.75% to 3.25% and employees' contribution being reduced from 1.75% to 0.75%).

Reduced rates will be effective from 01 July 2019. This would benefit 3.6 crore employees and 12.85 lakh employers.

The reduced rate of contribution will bring about a substantial relief to workers. Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments leading to improved viability of these establishments.

ESI Act 1948

The Employees' State Insurance Act 1948 (the ESI Act) provides for medical, cash, maternity, disability and dependent benefits to the Insured Persons under the Act. The ESI Act is administered by Employees' State Insurance Corporation (ESIC). Benefits provided under the ESI Act are funded by the contributions made by the employers and the employees.

Under the ESI Act, employers and employees both contribute their shares respectively. The Government of India through Ministry of Labour and Employment decides the rate of contribution under the ESI Act. Presently, the rate of contribution is fixed at 6.5% of the wages with employers' share being 4.75% and employees' share being 1.75%. This rate is in vogue since 01 January 1997.

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